Wetzel v. Equipment Dealers Credit Co.

Randy and Kimberly Davis (debtors) filed for Chapter 7 bankruptcy. The appointed trustee, Frederick S. Wetzell III (the trustee), filed an adversary proceeding against Equipment Dealers Credit Company (Equipment Dealers) (creditor) regarding the validity and priority of a lien claimed by Equipment Dealers against the bankruptcy estate. The Davises filed a loan application with Equipment Dealers in May 1999. Equipment Dealers claimed a security interest in a tractor and a front-end loader. In the loan application, the Davises stated that they lived in Clark County, Arkansas. In fact, they lived in Hot Springs County, Arkansas. Under Arkansas law, perfection required that the financing statement for farm equipment must be filed in the county of the debtor’s residence. Equipment Dealers filed a financing statement in Clark County but did not file one in Hot Springs County. The trustee argued that because Equipment Dealers had not properly filed, its security interest was not perfected and thus could be avoided by the trustee using his strong-arm power to avoid unperfect security interests. The trustee generally has priority over unperfected security interests but not perfected security interests, provided that those interest were perfected prior to the bankruptcy filing. Equipment Dealers argued that it acted in good faith in filing in the wrong county and that it should have priority.